Robert A. Bonavito, CPA PC

Divorce and Stock Options - ISOs and NQSOs

Video Transcript 

My name is Robert Bonavito, New Jersey, Forensic Accountant. This video is part of a series of videos where I discuss Forensic Accounting topics for educational purposes only. If this was a litigated matter, I would take a different approach, have different conclusions, based on different facts and circumstances.

And today's video topic is incentive stock options in a divorce. ISPs, if you work for a reasonable sized company, a lot of times, companies will give their employees incentive stock options. Okay, and what this simply means is that, if you're an employee and we hit a certain target, I'm gonna let you buy one share of stock for $18. But let's say the stock is only worth $15, well you're not gonna buy it. But if it's worth $20, and you only have to pay $18, you make $2 for it. And these can be a big part of your assets because these stock options plans can add up to be millions and millions of dollars. If I've had plans where employees could buy a share stock for $20, and the stocks went up to a $100, well guess what? That's a million dollars if you have 10,000 shares. Okay? Or a thousand shares. So it's important that you do an investigation if your spouse works at a company where they have a stock incentive plans. Because this can be a lot more money than they're actually earning in their W-2. And like I said, I've seen stock options worth you know $50 million, $100 million, and if you're getting divorced and you don't go after that money that's half yours, you will not get it.

Now we have two solutions in my firm that we mainly use when we're confronted with employees who work at companies where we think they have the opportunity to get stock options. First of all, we do a full investigation to determine what type of stock options they're eligible for, and how much they are worth and when they can be exercised. Because if you're getting divorced on a certain day, let's say June 30th, maybe those stock options, maybe they have 10,000 stock options that aren't worth any money at that point. But a year later they could be worth $1 million or $2 million or $10 million. And you don't wanna lose that value. So what we do, is we have what's called if and when. And what that means is if they sell 'em and when they sell 'em, you want 50% of those options. Okay? They earned those options when they were married, you're entitled to half of them.

Or we also have a Calhoun trust, basically does the same thing. We put the options in the trust, and remember if your spouse can make $1 million or whatever and they kinda know when to sell and buy because they're in the company. They will sell those even if they're only keeping half the money. So we feel pretty comfortable once we have an investigation to determine what the assets are, the ISOs are worth, that once you're in the trust they're gonna act in their best interest too which is gonna benefit you. And that is the best way to protect yourself if you have a spouse with stock options.

My name is Robert Bonavito. If you have any questions on this video, feel free to call me or email me.

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